Got Gas?  

elbman 41M  
1141 posts
5/8/2006 3:11 pm

Last Read:
7/23/2006 6:03 am

Got Gas?

Gas prices are soaring again, and expected to surpass last September’s high of $3.07 a gallon after Hurricane Katrina. Yet this time, there is no Hurricane Katrina to provide an obvious reason why. Both Republicans and Democrats are blaming the oil companies. The Bush Camp and Congressional Democrats are calling for a repeal of tax breaks to oil companies. Politically, attacking the oil companies while gas prices are high is safe, because many people already view them as faceless corporate entities that trash the environment while emptying their pocketbooks.

In reality, this criticism is shortsighted because the oil companies are not raising the cost of gas in order to earn higher profits. Punishing the oil companies will not fix the problem. In fact, it will cause additional problems, as ensued in the 1970’s when the government set price controls on gas, resulting in long lines and shortages.

Nor will the problem be resolved by giving everyone a onetime $100 rebate, a short-term solution proposed by Congressional Republicans, or by temporarily repealing gas taxes, an equally shortsighted solution proposed by the Democrats. The Bush administration is contemplating a relaxation of clean-air rules in order to reduce the costs involved in producing gas. This would also be a temporary fix, since eventually; environmentalists would force the regulations back into place. Instead of addressing the problem honestly, Bush and Congress are scrambling for a quick fix in order to ease voters’ concerns about the cost of gas before the 2006 fall elections.

The reason gas prices are increasing is not the fault of the oil companies, but because of several factors outside of their control, most notably the cost of crude oil.

Several costs go into producing and delivering a gallon of gas. These include the cost of the crude oil to refiners, refining costs and profits, distribution and marketing costs, and federal and state taxes. Generally, the cost of the crude oil hovers close to 50% of the cost of a gallon of gas, taxes comprise about 25%, and the remaining costs average almost 30%.

The current increase in gas prices is mainly due to an increase in the cost of crude oil; which has doubled over the past two years to more than $70 a barrel. This is the first of four underlying reasons why the cost of gas has increased. OPEC manipulates the price of crude oil. OPEC member countries hold about 2/3 of the world’s crude oil reserves, and provide about 40% of the world’s crude oil. OPEC sets limits on the amount of crude oil its members may produce in order to keep the price of oil at a target level.
The cost of crude oil is affected by conflict in oil-exporting countries, such as the Arab oil embargo of 1973. This most recent spike is caused by supply disruptions in the Gulf of Mexico and Nigeria. A correlating effect is caused by oil futures speculators who bid up the price of a barrel of oil whenever relations with oil-exporting countries sour, such as the current dispute with Iran over uranium enrichment and our increasingly poor relationship with Venezuela.

A second reason why gas prices have increased, which is the most important factor for the long-term, is that demand for oil has been gradually increasing around the world. Demand for new cars has risen in China and India. As those countries purchase more oil from OPEC countries, the U.S. is forced to turn to other oil-exporting countries at higher cost. Even if the U.S. chose not to buy any oil from OPEC countries, it would still be affected by OPEC’s changes in price or supply, since the countries that continued to purchase from OPEC would be affected by those swings and so would purchase more oil from non-OPEC countries, raising the cost of oil sold by those countries to the U.S. During the first quarter this year new car sales grew by 4.8 percent in the U.S. People in the U.S. continue to buy SUVs, which consume more gas than regular cars, while living increasingly farther away from their work in suburbs outside of the ever-growing megacities.

Third, environmental policies in the U.S. have kept costs associated with production, refining, formulas, transportation and storage of oil high. U.S. crude oil production dropped as reserves ran out, and environmentalists have prohibited new drilling in Alaska’s ANWAR. Because of the influence of Iowa farmers, many refineries are still in the process of switching from the additive MTBE to ethanol, at dubious value and excessive cost. Some areas of the country, like California, experience higher gas prices than the rest of the country due to even more stringent gas formula requirements, as well as their distance from the Gulf of Mexico pipelines. U.S. oil refineries are operating at maximum capacity, because liberals and environmentalists have prevented any additional refineries from being built for decades. Gas prices skyrocketed after Hurricane Katrina took out 10-15% of oil refineries in the U.S. and interrupted pipelines from the Gulf of Mexico that fed the Midwest and the East Coast. Without additional refineries to take up the slack, any time there is a disruption affecting refineries, gas prices soar.

Finally, gas prices in the U.S. have not kept up with the cost of inflation. A McDonald’s hamburger cost 28 cents in 1963, about the same price as a gallon of gas. That hamburger today (now called a double hamburger) costs about $3.00. Gas prices in European countries are twice as high as they are in the U.S.

What no one wants to admit is that gas prices should not be as low as they have been. Any attempts to keep the price of gas down go counter to the free market law of supply and demand. Is that where we are at today, insisting on government controls simply to keep one particular commodity at a price we prefer? Even if we were to accede to socialist price controls for gas, permitting us to continue using gas at ever-escalating levels that exceed the laws of supply and demand, it will ensure that global oil reserves eventually run out.

The solution is to allow the market to determine the price of gas, which will force the auto and oil industries to look at alternative modes of energy as people find ways to use less gas. It is already happening. ExxonMobil invested 68% of its net income over the past five years into finding and developing new energy sources, even though its profits were far less than the media has hyped them up to be. ExxonMobil’s profits compared to a company like Microsoft are miniscule; its net income to sales ratio peaked at 10% last year, which is paltry compared to Microsoft’s average of 25% to 41% ratio over the past decade. Punishing the oil companies will only take away marginal profits, which they were using to invest in new energy sources.

An imposition of a cap on profits would only encourage a company to cease operations when it had reached it’s maximum profit potential; would you work 50 hours a week when you knew that you were only going to be paid for the first 40?

So when you hear politicians on both sides criticizing oil companies and gas stations, remember it is because there is an election coming up. They know that the majority of the American public is more concerned about American Idol; than the basic economics the same government fails to teach in in it's schools.

I warned you a soapbox was comming


southrnpeach333 50F

5/8/2006 5:28 pm

I am a market place advocate. But the market place needs to savvy up. Again I have to ask, do we really need boats on wheels? What does a small surburban house wife with 2 kids need with a Suburban? I agree with you that gas prices have been kept low here in the US buy means other than pure market place economics. And if all the people screaming about drilling in Alaska would go scream about alternate fuels as much and demand research money be pushed down to research they would reach their object much more quickly.


elbman replies on 5/8/2006 6:12 pm:
Why can't she have one if she can afford one, that's what the country was founded on. Life, liberty and the persuit of property....and the property right of the individual.

68% of net income towards research is a substatial investment....not to mention British Petroleum, and others are on the same path. But until the better mouse trap is discovered and it will be just by the vast amount of money to be made in doing so, why don't we take advantage of the resources we do have?

funontheside4you 41M/38F

5/8/2006 6:00 pm

I agree that the U.S has gotton great prices on oil for years.
I also agree that people driving big suv's is a problem.
I just bought a new car... A Chevrolet Aveo... Gets 30 in town
and about 35 on the hwy. This car cost about 13,000.... I also moved
within 13 miles of my workplace, and my wife just got a job 6 miles form our house...
I feel that we have done about everything that we can do to
help our pockets, and the oil problem.
I do not agree with your let the company's just charge what they like speech. This is the biggest bag of crap I have ever heard.
If you don't stand for something you will fall for anything, don't you remember that song. It is true buddy. And oh my god, you are right let us not punish those poor oil company's that are just trying to make a dollar. Or 40 billion.. plus....
If you think that this is bad, let us all do nothing as you want, and lets see it reach 5.00 a gallon. As soon as the oil company's know that we are a bunch of spinless, ignorant people,
that is just what is going to happen.. Just wait. Do nothing..
AND SEE....


elbman replies on 5/8/2006 6:08 pm:
Once again it's not the Oil ( or more correctly refining companies) who are inflating the price.....what do you expect when we hold ourselves to the mercy of what in this country would be an illegal cartel.....to dictate the supply of oil to the world....Exxon Mobil has no desire to pay $72 a barrel.

The last time the government got involved with price controls and playing with the fair market was the Carter admin....at least now you can get gas....and pay single digit interest rates.

The market will balance itself as it always does....if one player gets too greedy....then someone will find away to profit off their excess and create competition.

southrnpeach333 50F

5/8/2006 6:50 pm

    Quoting southrnpeach333:
    I am a market place advocate. But the market place needs to savvy up. Again I have to ask, do we really need boats on wheels? What does a small surburban house wife with 2 kids need with a Suburban? I agree with you that gas prices have been kept low here in the US buy means other than pure market place economics. And if all the people screaming about drilling in Alaska would go scream about alternate fuels as much and demand research money be pushed down to research they would reach their object much more quickly.
I have no problem with people buying what they want. But those are the first people bitching about how much it costs to fill up their cars. Also, no problem using the resources that we have. It is finite commodity though. And I used to work at a University in the Material Science Department helping to write proposals and some of them were for alternate energy sources. I know all about research dollars or the lack of. Great discussion by the way. I like you on a soap box.


elbman replies on 5/8/2006 7:59 pm:
You know what I drive, it's not for fuel efficiency; but for comfort and safety. I'm willing to pay a premium at the pump for those items. Look at a large number of sedans and coupes (especially european) that require 92(premium) octane; sure these cars may get better millage, but also cost .20 a gallon more to fill up.

The lack of appropriate research dollars typically involves the government. They have no motivation, because if they need more money they just levy more taxes. Private industry doesn't have that luxury; the have to innovate to stay ahead of their competition.

They do so by cutting costs and always looking for ways to gain market share.

(You only like me here cause I'm nipple height now)

southrnpeach333 50F

5/8/2006 7:34 pm

well, hell, i quoted the wrong thing. i meant to quote what you said. not what i said. oh well, that is what happens when i try to get serious these days.


elbman replies on 5/8/2006 7:59 pm:

JustaSeeker 106F

5/8/2006 9:37 pm

The question we should be asking ourselves is, how do we justify the ongoing resistance to public transportation on the national level. We can all debate the fuel issues until we're blue in the face, but until we wake up and face what every rational nation of our stature has accepted; the fact that clean, efficient, safe and available mass transportation options are no longer optional, we will continue the slow sliding into the morass. And this one's made of petroleum byproducts.


elbman replies on 5/8/2006 11:10 pm:
The government isn't interested. I'll give you an example close to home. When MARTA (Atlanta's Mass Transit System) was first laid out; the baseball stadium (Fulton County at the time; and now Turner Field) was excluded from the train line. Why? Because the City of Atlanta owned the rights to the parking revenues from the near-by lots. Thus you have to take a train to the buses that take the same streets as your car would to the games.

If it takes you just as long and costs near as much you are going to choose the convenience of personal transportation to public. The example being is that I have to drive half-way to the airport every week to catch a plane....since I'm already driving I will drive all the way.

JustaSeeker 106F

5/9/2006 7:02 am

I didn't know the why of the decision to keep the field off the line, but it doesn't surprise me. Money talks, especially in this town. And we all do that; drive rather than take a poorly planned and inconvenient transportation system. That is my point. And because our government doesn't really give a fat rat's ass about changing that, it will always be this way.


elbman replies on 5/9/2006 1:30 pm:
Yet everyone thinks it's the job of the government to fix it......

There is no place in the Constitution that says:

Congress shall have the right to fix every little annoyance of the people; because the government is such an efficient mechanism of doing so.

JustaSeeker 106F

5/9/2006 2:03 pm

Well, if the government isn't going to affect it directly, they're going to have to do so indirectly, because it's a matter of either doing it or allowing it to be done legislatively. In that case you're talking about privatization, and that would be fine if the government allows it. Get Disneycorp on it. They and their conterparts have experience moving millions of bodies every year. The downside to that is that tickets would be 40 bucks a day.


elbman replies on 5/9/2006 2:39 pm:
Have you looked at your tax liabilities lately.....I could deal with $40 a day.....

rm_emmie234 52F
608 posts
5/9/2006 7:34 pm

The rich continue to gain wealth as the environment continues to crumble. And that, folks, sums up the monoploy the oil industry has upon our lives/world/government.

Great new pic! Where is the tan?

~E~


elbman replies on 5/9/2006 9:50 pm:
Look to the cartels which control the supply of the worlds crude....not the companies that refine the product. Supply is limited in this country due to enviormental concerns....there are untapped supplies just off your coast.

Thanks...winter pic....I'll have to update with a Summer Pic next week....

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